Contributions of cost accounting systems and casemix adjustment to hospital management

1. Contributions of cost accounting systems and casemix adjustment to hospital management Dr Magali Pirson Département d'Economie de la Santé Ecole de Santé Publique/Université Libre de Bruxelles

2. Introduction • Many countries integrated DRGs (diagnosis related groups) or their equivalents in their hospital funding system • French GHMs • Australian AR-DRGs • UK HRGs) • Fetter, 1975. • Compromise between a medical and an economic logic.

3. Introduction Even if this classification is flawed, it is the only one to have been adopted in Western countries and even outside.

4. Introduction • A simple parameter influencing calculation of hospital budgets in Belgium. • Principal tool for hospital financing system in France and Germany; Victoria, South Australia and West Australia. • Being introduced in Queensland in 2007/08 budgets. • If Fetter and Thompson (inventors of DRGs) are satisfied by the impact of DRGs in the field of hospital financing systems, they express, a certain disappointment on the little use made of them for hospital management.

5. Research Question: • How can patient level cost accounting systems assist in hospital management, particularly under DRG-based funding?

6. Cost calculation methodology

7. Context of a cost calculation • Exceptional that a hospital undertakes, of its own initiative, the calculation of costs by diagnosis and by episode. • Hospital associations can stimulate costs studies by diagnosis: • objective of benchmarking. • anticipation of a potential evolution of the funding system.

8. Context of a cost calculation • Usually, political authorities and/or insurers will take the initiative to stimulate such studies. • The objective is often to prepare a reform of the hospital financing system in order to control the growth of hospital expenditures.

9. Cost calculation families • "cost modeling": external data (relative values imported from other settings) to model hospital’s performance • "cost accounting": internal data • Determination of total costs of cost centres (direct and indirect) • Costs of products (nursing care, hotel services, procedures) • "costs to charges" ratios (US Medicare) • Surcharge method • Relative value scales • Measured costs ("activity based costing") • Costs of stays (or "clinical costing ")

10. Our costing methodology

11. Our costing methodology "Activity Based Costing" - Leclercq P, Bennert A, Pirson M. Mise en pratique de l'Activity Based Costing dans une unité de soins intensifs, Santé et systémique 2003; 1-2 :177-190. Relative value scales - Pirson M, Patris A, Leclercq P, Bodin J.P. Financement des blocs opératoires en France et en Belgique. Journ Econ Med2004; 4 :177-187. - Leclercq P, Pirson M. Comparaison de nomenclatures d’actes médicaux : impacts de l’utilisation des nomenclatures belge (INAMI) et française (CCAM) sur la rémunération d’une équipe chirurgicale. Journ Econ Med 2005; 1: 37-55

12. What are the contributions of a cost accounting system by episode and by diagnosis to hospital management in Belgium? Discussion and conclusions on the basis of results from principal articles

13. Decomposition of this research question into 3 specific interrogations • (1) Can a cost accounting system, based on diagnoses, help managers to fulfill their missions? • (2) Do costs by DRG bring a new dimension to hospital benchmarking? • (3) Can we consider that the analysis of costs by diagnosis constitutes a tool of communication and collaboration between managers and medical doctors?

14. Q1: Can a cost accounting system, based on diagnoses, help managers to fulfill their missions? • One of the first objectives of management is to ensure the profitability of the production of its institution • Profitability of departments (traditional approach) • Profitability of patients and diagnoses (APR-DRGs) • For nonprofitable diagnoses: analysis of costs and analysis of prices • Evolution towards a PPS >>> more interest on cost analysis (and especially analysis of cost outliers) • Association of medical directors to find an explanation for stays whose extra costs cannot be explained by casemix

15. Pirson M, Dramaix M, Leclercq P, Jackson T. Analysis of cost outliers within APR-DRGs in a Belgian general hospital: Two complementary approaches. Health Policy. 2006 Mar; 76(1):13-25 Pirson M, Martins D, Jackson T, Dramaix M, Leclercq P. Prospective casemix-based funding, analysis and financial impact of cost outliers in all-patient refined diagnosis related groups in three Belgian general hospitals. Eur J Health Econ. 2006 Mar; 7(1):55-65

16. Setting • General hospital in Brussels, 278 beds. • Year 2001, 8 169 multi-day stay dischargesAPR-DRGs >=50 patients(n=5 119) • High outliers:75th percentile + 1,5* inter-quartile range • Low outliers:25th percentile - 1,5* inter-quartile range. Variables • The dependant variable: outlier vs. non-outlier • Explanatory variables: severity of illness, length of stay (LOS), social status, age, gender, type of admission, destination after discharge, presence of co-morbidities, an intensive care unit (ICU) stay, acquisition of a nosocomial bacteraemia, and readmission within 1 year

17. Logistic regression model : estimated probability of a patient being a high cost outlier according to risk factors (n= 5 058)

26. . • Medical or social reasons accounted for 74,61% of cost outliers. • Need to involve the medical profession in such analyses. • Complementarity of the statistical approach and the analytic approach.

27. Q1: Can a cost accounting system based on diagnoses help managers to fulfill their missions? • A second concern of managers is to guarantee the quality of medical care. • We wanted to study the relation between costs and quality of care (differences in severity between the admission and the discharge of a patient). • Very complex: we have limited the study to the evaluation of the relation between costs and the severity of illness.

28. . • Pirson M, Mareschal B, de Landsheere C, Blouard P, Mira M, Carlier M, Leclercq P. Are inpatient costs of acute myocardial infarction directly related to its clinical severity? soumis à la revue : Health Policy

29. Aims: • This study aims to analyse the relationship between: • inpatient costs and severity according to All Patient Refined-DRGs (APR-DRGs) • specific costs directly related to acute myocardial infarction (AMI) and its severity as determined by cardiologists

30. Severity evaluation: compromises between 4 cardiologists(relative weights) • 19%>>>Left ventricular ejection fraction (LVEF) assessed by contrast ventriculography; 4 intervals were selected: > 60%, 40-60 %, 20-39 %, < 20 %, • 15%>>>Acute pulmonary oedema, • 13%>>>Arterial systolic blood pressure < or = 100 mm Hg, • 12%>>>More than one vessel disease (> 1VD), • 10%>>>Akinesia or dyskinesia, • 7%>>>Anterior localization of infarction, • 7%>>>Age over 80 years, • 7%>>>Past coronary events, • 6%>>>Diabetes, • 4%>>>Sus-denivellation of ST-segment,

31. Results Clinical Severity PROMETHEE-GAIA method (Statistics and Operations Research, ULB, Pr.Mareschal)

32. ResultsComparison between total cost and the severity of illness related to APR-DRGs (p<0,001) (p<0,001) (p=0,165) CM: mean cost CTND_INF: mean cost not related to AMI CTD_INF: mean cost related to AMI

33. ResultsComparison between costs directly related to AMI and the clinical severity • no correlation between the severity of the model and costs directly related to cardiac pathology (rs= -0,07; p=0,45) • same conclusion when dead patients are excluded from analyses (rs= -0,04; p=0,73) • moderate correlationfor surgical cases (N= 16, rs= 0,50; p<0,05)

34. ResultsComparison between costs directly related to AMI and types of treatment. 1= CABG 2= PTCA 3= PTCA+CABG 4 = no PTCA, no CABG

35. Q1: Can a cost accounting system, based on pathologies, help managers to fulfill their missions? • Analyses by diagnosis are limited by statistical problems (few patients by group) • Complementary approaches (hypothesis of extra costs for some medical or social complications/situations • Ex: extra-costs associated with nosocomial bacteraemia (economic aspect of qualitative studies)

36. . • Pirson M, Dramaix M, Struelens M, Riley T. V , Leclercq P. Costs associated with hospital-acquired bacteraemia in a Belgian hospital. Journal of Hospital Infection 2005; 59: 33-40.

37. Setting • General hospital situated in Brussels, 278 beds • Year 2001 • 8 169 admissions • The hospital infection control practitioner provided an extract from the NSIH (National Surveillance of Infections in Hospitals) local database, listing patients with a hospital-acquired bacteraemia (cases) • Controls were all patients with the same diagnosis related group [All Patients Refined DRG (APR-DRG)] but without a hospital-acquired bacteraemia. • For some analysis, patients were grouped into six bigger groups, largely based on systems (respiratory, vascular, digestive, orthopaedics, neoplasia, and other), to overcome the problem of groups with too few patients to analyse.

38. Mean total extra costs (€) and reimbursement for hospital-acquired bacteraemias (n=1 344)

39. Q2:Do costs by DRG bring a new dimension to hospital benchmarking? • Limited interest in a benchmarking approach which does not take case-mix into consideration. • Standardisation based on the case-mix (ex: french and swiss approach) • Precondition to standardisation based on the case-mix : cost-weights scale based on a representative sample of hospitals.

40. French approach Tableau extrait de « Le PMSI Programme de Médicalisation des systèmes d’information. Analyse médico-économique » La lettre d’informations hospitalières 1996; N° spécial: 42.

41. Suiss approach. Extrait du tutorial de L. Schenker (PCS Suisse 11/2005)

42. Belgian attempt of benchmarking ( cost of the point) between four hospitals and a reference hospital. • Cost of the point: costs of all stays divided by points generated by all stays (for each DRG: number of patients* CW). • Benchmarking: outliers excluded. • Reference hospital (HR) • HR: Stays from 4 hospitals • Mean cost of APR-DRGs (and severity of illness): mean costs from stays of the 4 hospitals • CW : mean cost of each DRG divided by cost of all inliers from the 4 hospitals

43. P131-144 Cost-weights by APR-DRG (et sévérités regroupées) on the basis of cost inliers or LOS inliers.

44. Inter-hospital comparison: cost the point. HR: 3 453,08 €.

45. A further analysis • If cost of the point is higher than the cost of the point of the reference hospital (or than the cost of the point of a comparable institution) • >>> analyse of the cost of the point by category of expenditure

46. A further analysis • If the cost of the point is higher than the cost of the point of the reference hospital (or than the cost of the point of a comparable institution) • >>> analyse du coût du point par catégories de dépenses. • >>> comparison of mean costs by APR-DRG (and severity of illness).

47. Inter hospital comparison of mean costs • by APR-DRG (and severity of illness). • Two types of approaches are possible. • * comparison to another hospital, for example, the best performing • * comparison to a reference hospital.

48. A further analysis • A more detailed analysis, centered on expenditure categories can then be started. • In which categories of expenditure is the hospital the worst performing? • What explains cost differences? (is unit cost of production more important, or are more services consumed?)

49. . • Pirson M, Leclercq P. Comparaison du coût de la prise en charge de l’infarctus du myocarde entre trois établissements hospitaliers. Journ Econ Med 2005; 23 (7-8):439-455

50. Ex: comparison of acute myocardial infarction (APR-DRG 190 & ICD-9-CM 410), with homogeneous severity of illness H2 H3 Mean cost Administration and ‘hotel’ service Care Drugs Coût moyen séjour 7.527 5.261 1.023 886 Adm & Hot induite 5.658 3.501 Soins 846 874 Sp Pharma